Noakhali Science & Technology University

Department of Business Administration

Assignment on:
Assessing industry attractiveness of “Readymade Garments (RMG)” Industry
applying Michael Porter five forces model.

Submitted for:
Masum Mia
Assistant Professor

Department of Business Administration,

Noakhali Science & Technology University.
Sonapur, Noakhali-3814, Bangladesh
Submitted by:
Raisul Alam Nasir
ID: ASH1510074M
Major: Accounting & Information Systems
Department of Business Administration.
Noakhali Science & Technology University

Submission Date: 27.09.2020.

Introduction:
The readymade garments (RMG) sector is the backbone of national economy of Bangladesh. The
RMG bears immense potentiality in many respects varying from foreign export earnings to
employment generation.1 It also acts as a catalyst for national development and the ―Made in
Bangladesh‖ tag has brought glory for the nation from across the globe with a further possibility
of glittering future amid growth and development. Despite manifold difficulties faced by the
sector over the past years, it has carved a niche in global market and the robust performance of
the sector is on the rise.2 The sector is striving to double its export within 2021 earning around
USD $50 Billion from its present earnings of USD $25 Billion. Over the past six years the
garment industry has grown by an average of 13.9% annually which makes $50bn by 2021 seem
within reach.3The epic growth of RMG industry poises bright prospects but challenges are still
there. The biggest challenge currently faced by the RMG sector is to ensure workplace safety and
better working conditions for the millions of workers. Two major accidents, the Tazreen fire and
Rana Plaza collapse, have brought the issue of workplace safety to the fore front of discussion
amid engagement of all stakeholders. After the tragedy, image crisis posed a major challenge not
only for the RMG sector but also for the nation as a whole.4 However, ensuring workplace safety
at all garment factories is a gigantic task and a time-consuming issue to accomplish in line with
global demand and standard. Apart from workplace safety, developing infrastructure along with
skilled workforce are the most pressing challenges for the sector. Along with political unrest and
compliance issues, productivity of Bangladesh Garment industry is lower than that of other
leading players on the global market. But political stability is very crucial for the sector to keep
continuing its pace of development in the days ahead. With the support of global brands and
international development partners the crises in the RMG sector may be eased paving the way
for socio-economic development in the country. It is the responsibility of all stakeholders to
protect the interest of this industry which has strengthened the economic footing of the country
creating jobs for millions of people, especially for women, lifting them from the abyss of chronic
poverty and giving them a touch of dignity in life. This research study is a venture to explore the
current status of the RMG sector along with the prospects and challenges aiming at the
amelioration of the wounds of the sector and searching further betterment of the sector for the
country.

Contribution of the RMG Sector:

The contribution of the RMG sector to the national economy is now in the leading position. The
RMG sector is considered as unpolished diamond. Riding on the thriving RMG industry for the
three and a half decades, the country’s economy is now on a new height. The country has been
maintaining a 6 percent economic growth for more than a decade only for the growth of the
RMG sector, which created more than four million jobs and pumped billions into the economy.
About 81 percent of our export earning comes from this sector. Bangladesh exported $25 billion
in the 2012-2013 fiscal with nearly 20 percent year-on-year growth despite a volatile global
financial system and internal political crisis. Even after the historical Rana Plaza disaster the
growth rate in the RMG sector was about 13 percent. Out of $25 Billions the sum more than
$14billion worth of products was sent to the EU and about $5 Billion was in America. In 2011,
Bangladesh has become the second largest garment exporter in the world, only next to China. At
present Bangladesh accounts for 5.0 per cent of world RMG export while China's share is 30 per
cent in the $450 billion global market. But China is slipping from its top position, losing 5.0 per
cent of its contribution annually due to labor shortage and high labor costs. If there was no
slowdown in the global market Bangladesh could export more and meet the target of US$28
billion in the current fiscal year. In spite of the global slowdown RMG exports in aggregate
posted a growth rate of nearly 4.0 per cent amounting to US$ 4.99 billion in the first quarter of
the current fiscal year of 2015-2016 compared to the corresponding period of the preceding year.
Bangladesh has set a target of earning $50 Billion US Dollar by 2021 when the country will be
celebrating the golden jubilee of its independence. The RMG industry has contributed in diverse
ways to the national economy. It has contributed in women empowerment spirally in respect of
rural and backward section of women. It is well recognized that women’s participation in income
generation activities lends them a better status within the family and provides them with
considerable freedom. As the income by the female member reduces dependency on male
income it reduces their vulnerability. It also reduces the possibility of domestic violence against
women. After independence in 1971, most observers of the newly emerged country took a
pessimistic view about the developmental prospect of Bangladesh but the country has proved
bouncing back from the trodden down economy to the present prospective future. Although there
is little room for complacency Bangladesh has come a long way from there and in the days
ahead, the contribution of the RMG sector will be helping a lot in shaping a progressive and
sustainable economy of the nation.

Prospects of RMG Sector of Bangladesh:

Yet Bangladesh RMG sector remains a huge challenge and criticism, however, this sector has
enormous prospect at the same time. This sector has been providing immense employment
facility to the worker, especially empowering woman by employment. Near about 4 million
people are directly working within 3,500 active readymade garments factories in Bangladesh
where 80 per cent of woman. More or less 20 million people livelihoods depend on the RMG
sector. The RMG as a single sector contribute about 13.5 percent of our national GDP. In spite of
image crisis of RMG sector of Bangladesh and long-lasting political turmoil this sector has been
continuing positive export growth during last eight month of present fiscal year. Last couple of
years a huge change has been made after the heinous devastating of Rana Plaza and Tazreen
Fashion and other reasons.
1. Leading Export Earner:
 Various sectors have been contributing our national GDP by earning foreign currency.
Among the different sectors, garment, jute and jute related goods, leather and leather related
products and frozen foods are mention worthy. However, the RMG industry is now the
single biggest export earner for Bangladesh. The sector accounts for 81% of total export
earnings of the country. Sector Wise Exported from Bangladesh (July 2018 - January 2019)
is shown in the graph. The above graph shows that among the diverse segments, the
readymade garment as a single sector grasp 81 percent of total export from July, 2018 to
January, 2019, where leather and leather related product, jute and jute related goods and
frozen foods contributes 4, 3 and 2 percent only.
2. Foreign Investment:
As Bangladesh has huge human resource and they can be employed by poor labor cost;
foreign investment may be attracted to invest in Bangladesh. So, the government can play a
vital role for inviting foreign investment in the RMG sector. The Japan External Trade
Organization as known as JETRO is the giant business investor in the world. In 2019 they
have published a report marking that the Bangladesh is the 2nd best business investment
priorities country in the world.

Workers wages per month in $

450
400
350
300
250
200
150
100
50
0
1

CHINA THAILAND INDONESIA INDIA

VIETNAM CAMBODIA BANGLADESH
Source: JETRO Dhaka office on 22nd February, 2019(survey: Octobers-November, 2018)

The main cause for choosing:

I. Lower production costs,
II. Lowest worker wage levels among the competing countries,
III. Workers' wages in the manufacturing sector in Bangladesh is $100 a month, while
Cambodia has the second lowest wages at $113,
 IV. In comparison to Japan, the cost of production in Bangladesh is less than half 48.7
%, while it is 77 % in China and 71 % in Vietnam.

The production cost of different competing countries is shown in the following table:
Country Production Cost % Position
Japan 100% First
Thailand 81% Second
Indonesia 78.5% Third
India 78.5% Third
China 77.8% Fourth
Vietnam 73.2% Fifth
Shri-lanka 70.8% Sixth
Bangladesh 48.7% seventh
Source: Compiled by author depend on the JETRO report.
The production cost is lowest in Bangladesh compare with the other countries like Japan,
Thailand, Indonesia, India, China, Vietnam and Sri Lanka. According to the above table,
Japan stood highest position as production cost is 100 percent. On the other hand,
Bangladesh stood lowest position as the production cost is 48.7 percent only.
3. RMG Industrial Park:
To set up a garment industrial park was a dream of BGMEA. From the beginning of 1990
this sector looking for a suitable place outside of Dhaka city with all contemporary industrial
facility. Finally, the Government agreed to provide all kind of support to build in the name
of Garment Industrial Park close to Dhaka-Chittagong highway on bank of Meghna River
(Munshiganj). The area 492 acres where about 300 knit, woven, dyeing, sweater,
accessories factories will be set up. The stakeholders of the RMG sector and scholars now
have been opining that the incidents of Rana Plaza and Tazreen Fashion Flame were not
only curse but also blessing by sack of the deceased workers. As last couple of years after
Rana Plaza collapse and Tazreen Fashion Flame, the development of the RMG sector is
enormous than that of any other sectors in Bangladesh.
However, the main purpose of this industrial park will be to relocate the non-compliant
factories that have been marked after all the inspections by Accord, Alliance and NAP. None
the less, accordingly implementation of the said park willenhance economic activities of the
country and about 3 billion USD per annum will be gained from this industrial park when it
becomes fully operational. BGMEA is also trying to build this park on the basis of EPZ
model so that all sorts of facilities including fiscal incentives can be provided like those
provided in EPZ. Many foreign investors are showing their attention to financially and
technically help BGMEA for building this industrial park. As BGMEA has no adequate fund
for setting up this park, it signed a Framework Agreement following signing of an MoU with
 Oriental International Holding (OIH), a Chinese Company, which agreed to invest in the
industrial park with zero investment from BGMEA. So, the BGMA and OIH as a Joint
Venture (JV) Company has been formed and a definitive agreement will be signed by both
parties. As per Framework Agreement, OIH will pay the project cost including land price in
the name of the JV Company and it is expected that the proposed project land will be handed
over by the middle to BGMEA-OIH JV Company. BGMEA members, especially the owners
of non-compliant and vulnerable garment factories, will get special preference and priority
to relocate their factories in this industrial park.

The facilities that are supposed to be provided in the industrial park are as follows:
i. Fire station,
ii. Bank and insurance services,
iii. Central Effluent Treatment Plant (CETP p),
iv. River Jetty,
v. Power Plant,
vi. Clinic,
vii. Deep well with Pump house,
viii. Administrative buildings,
ix. Gas connection provision,
x. Solid waste &Dump station,
xi. Road, Drainage system,
xii. Kids will have schools and playgrounds;
xiii. Elders will have community work etc.

The other facilities including sufficient linking internal roads, approach road, drainage
system (both surface and waste water) will be there with proper design and as per
requirement. Every factory will be connected with Central Effluent Treatment Plant (CETP)
for disposal of industrial liquid and sewerage water.
4. Export Growth & Vision (2021):
Even during political turmoil from the beginning of the year, export growth rate has brought
a ray of brightness amid the depressing economic prospects. According to BGMEA, ―RMG
exports could have grown more as they have a lot of work orders from international buyers.
Garment products account for more than 81 percent of the country's total export basket. It is
indeed a good sign that the US also has started positive movement from March, 2019, after
the long downward trend.
 Export earning in Billion $
3.5

2.5

1.5

0.5

0
Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19

According to data from the central bank, the total export earnings so far in fiscal 2018-19 to
$23.24 billion year-on-year. It means export rose 7.43 percent year-on-year to $2.93 billion
in March, 2019.
According to data from the US Department of Commerce, in between the January- February
2019 garment exports to the US registered 2.82 percent growth from the previous year.
The first Apparel Summit held in Dhaka; December 7-9, 2018 set a new vision to export
clothing goods worth $50 billion by 2021. In order to accomplish the target, the RMG sector
has to need at least 15 % year-on-year increase in exports. Bangladesh’s total exports to the
EU are more than $18 billion a year, of which more than $15 billion are
garments.9However, it will not a big challenge to reach this target. According to the
following figure, the average annual growth of Bangladesh readymade garments from fiscal
year 2013 to 2019is 15 per cent. Even though, in between this time various heinous tragedies
were happened including Tazreen Fashion flame and Rana Plaza tragedy.
It is a good sign that after the Rana Plaza devastation Bangladesh has taken some excellent
scheme i.e. more than 200 trade unions have permitted in the RMG industries, hazardous
industries have been stopped, government have increased so many new inspectors for
inspect the factories, remediation of the factories is underway and transparency has been
recognized in the business sector. So due to the considering above all the US will support
Bangladesh in reaching its $50 billion RMG export target by the end of 2021.

5. Progress:
Now RMG sector in Bangladesh are more careful regarding the workplace safety. After the
Tazreen Fashion flame and Rana Plaza collapse, no more industrial tragedy took place
across the country. It is going to extensive development towards fulfilling the required 16
conditions given by the USA for regaining the GSP facility.
 Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is demanded to
the Government for duty free import fire safety equipment such as sprinkler, fire door and
other safety and environment-friendly equipment due keep the factories safe and secured.
BGMEA also demanded duty withdrawal on import of pre-fabricated ‘materials required for
building construction. According to the demand the government has agreed to reduce duty
on some safety equipment from 61 percent to 15 percent.It is a good mark that after Rana
Plaza collapse a Memorandum of Understanding (MoU) was signed between Japan
International Cooperation Agency (JICA) and Bangladesh Bank (BB) due to provide Tk 100
crore loan for the development of RMG sector in Bangladesh. Bangladesh Bank (BB) also
insisted on the other commercial banks to lend RMG owners at lowest interest and owners to
ensure good terms with workers. Considering good client any bank can lend at 6 % interest
rate even standard instruction to allow 10 % interest rate. And any bank can borrow at 5%
interest rate from BB.13
According to BGMEA, there are 1110 factories in Gazipur and Kona Bari, about 600 at
Ashulia and Saver and 444 factories in Narayanganj. Along with above, till now, 2,643
factories have been inspected by three initiatives:
I. 1,261 by Accord15,
II. 647 by Alliance16 and
III. 735 factories by National Action Plan (NAP).
Around only 1.25 percent of the inspected factories were found vulnerable and closed down
immediately.17And a significant progress has been made in the areas of safety, including
fire, and electrical and building structural safety, in the readymade garment factories.
Moreover, factories are implementing corrective action plans provided by Accord and
Alliance. Alliance holds up democratically elected workers contribution committee in the
RMG factories with an aim to raise the voice of the Labors on the safety issues. Alliance
intends to improve and empower worker in this sector. In this regard Alliance organized a
common set of fire and building safety standards for the RMG sector in Bangladesh which
line up with the Bangladesh National Building Code (BNBC), Bangladesh Labor Law,
International Labor Organization (ILO) and also maintain the National Tripartite Plan of
Action (NTPA). The Alliance promised $100 million in low-cost capital funding to improve
fire and structural safety in Bangladeshi factories.18However, all work with the
collaboration process of the National Action of Plan.

6. Launching Textile Technology Business Centre (TTBC):

A remarkable stepping stone has been marched by Bangladesh Garments Manufacturers and
Exporters Association (BGMEA) in the area of environmental sustainability on 1
October2018. An exciting new center named Textile Technology Business Centre (TTBC),
the first of its kind in Bangladesh, was launched that day. TTBC will be supportive to the
member factories of BGMEA in adopting resource efficient management system, cleaner
production process, and environment friendly technology. As a knowledge hub, one of the
key roles of the TTBC will be to assist the RMG and textile industry in adopting
sustainability measures, including waste water and ground water management systems. The
 center was set up by the BGMEA with support from the Embassy of the Kingdom of
Netherlands (EKN) and the International Finance Corporation (IFC), and is part of the
Partnership for Cleaner Textiles program. Housed in the BGMEA complex, the TTBC will
be supportive to RMG/textile factories in adopting best practices and technologies that
improve business and environmental sustainability. In the center of TTBC there is a world-
class library and knowledge center equipped with all the necessary books, publications,
journals, scientific papers etc. to provide updated information to visitors.

7. BGMEA joining CBI:

Due to affluence, smooth and hygienic journey of RMG industry in Bangladesh, BGMEA
has been working with different national and international organizations. As component of
it, BGMEA has joined with CBI (Centre for the Promotion of Imports from developing
countries) an agency of the Ministry of Foreign Affairs of the Netherlands. Surrounded by
the agenda of a four-year CBI will find Best Practice Garments Bangladesh (BPGB) by join
forces to develop the value chain of the Bangladeshi RMG sector. In addition, CBI program
will improve the compliance sector of RMG industry, uphold to the world competitive
market as the best exporter at the same time to protect and preserve the economy with
sustainable development for the country.

8. New Market for Bangladesh RMG:

Basically, Bangladesh readymade garments market is stuck with only two destinations such
as the European Union and the United States of America. After Rana Plaza collapse in 2013,
the GSP facility has been cancelled by America. They have given 16 conditions for
improving the garments sector (safety, security, ensuring workers ‘rights etc.) of Bangladesh
in order to get back the GSP facility from the USA. Necessary remedial measures in the
meantime have been taken by Bangladesh Government as per the conditions imposed by the
USA. However, yet the American government has taken no positive initiative in this regard.
Scholars opine that this issue is now considered as a political issue instead of business
concern. On the other hand, recently Pakistan, Philippians and Sri Lanka have got GSP
facility from the EU. So, Bangladesh has a possibility to loss her market in the EU and the
USA. Nonetheless, in the last year the RMG industry made significant progress in terms of
exploring new markets like Russia, South Africa, Brazil, Turkey etc. The percentage of
exports to the non-traditional market increased to 14.71% in the last fiscal year of 2017-18
and the growth of export to non-traditional market was 21.15% in the fiscal year of 2017-
18. As the GSP facility is closed to the US market and has possibility to loss the market of
EU, new destination is essential for RMG sector of Bangladesh.

Challenges of RMG in Bangla:

No doubt that the Readymade Garment (RMG) as a single sector makes Bangladesh as a brand to
the world market. The apparel buyers are rotate in Bangladesh mainly due to the following
reasons:
a) Lower price of the product,
b) Branding quality of the goods,
c) Innovative design, smooth finishing, and
d) Committed to provide goods as per the retailer ‘s time frame and demand.
Nonetheless, this sector has also some challenges. And the challenges in terms of:
i. Lack of work efficiency.
ii. Cost of relocation this sector to the other places
iii. Development of poor infrastructure
iv. Lack of application of labor law and poor standard of labor law
v. Currency devolution with Euro
vi. Political turmoil
vii. Lack of GSP facility from world market, to meet the vision 2021 and
viii. The lacks of commitment of the stakeholder in this regard are imperative.
Workers ‘efficiency can play a vital role for progress and produce of goods a lot. And it can
contribute to the workers ‘skill development, employment, branding product as well as share to
the national economy and growth of national GDP. The RMG workers ‘in Bangladesh has some
lack of workers ‘efficiency. To compare with the other competitive neighboring countries like
China, India, Vietnam, Pakistan, Bangladesh took of its lowest position according to the
following graph.

Conclusion:
Considering all, pertinent to RMG, this sector has enormous prospect in Bangladesh. The
constructive export rate to the traditional and non-traditional market, for the sake of lowest labor
cost and manufacturing cost, Bangladesh is the number one choice in the eyes of foreign
investor. Building collapse and fire flame in the RMG sector is the past and just will remain in
the archive as Accord, Alliance and NAP have been ensuring the stander of building and
declared safe. This sector is also affirmed an industrial zone and going to be shifted in
Munshiganj. It has a new vision know as vision 2021 for reaching US$ 50 billion export. The
sustainable development and huge progress (after Rana Plaza and Tazreen Fashion flame) will
make the branding Bangladesh in the world market. And the prospect of RMG does not mean
only the gain of business persons but also the gain and empowerment of women and employment
of people, development of socio-economic condition and at large the overall development of the
nation in a sustainable manner. So we should concentrate to this sector for the sake of better
Bangladesh.
References
1. Ahamed, Ferdous. ―Can Trade Unions play an effective role in defending workers
‘rights in the Bangladesh Ready-made Garment industry? ‖. Middle East Journal of
Business, Volume 7, Issue 3, (July 2012): 12, Retrieved from
<http://www.mejb.com/upgrade_flash/pdfs/July2019.pdf>accessed on April 25, 2019.
2. http://www.mejb.com/upgrade_flash/pdfs/July2018.pdf
3. http://www.annemain.com/pdf/APPG_Bangladesh_Garment_Industry_Report.pdf
4. The International Labor Organization (ILO). ―Bangladesh, Improving working
conditions in the readymade garment industry: Progress and achievements‖. (April 2015).
Available it<http://www.ilo.org/dhaka/Whatwedo/Projects/WCMS_240343/lang--
en/index.htm> accessed on May 3, 2015.
5. www.bgmea.bd.com.